03/13/2017

Before You File Your 2016 Taxes, Review These Tax Breaks for the Disabled

There is some kindness in the tax code, especially when it comes to the disabled and their care givers. There are a few tax breaks that are intended to alleviate some of the financial burden.

Even when a disabled person is able to work, they or their caregivers must incur many additional costs, from transportation needs to medicines and special supplies for care. A study by the Centers for Disease Control and Prevention reported that one out of every five Americans lives with a disability. If this includes you or someone you care for, you’ll want to know about some tax tips that are designed to help. A recent article in Yahoo Finance,“8 Tax Tips for People With Disabilities (and Their Caregivers),” offers some useful details.

ABLE accounts. These accounts are newer savings vehicles for those who become blind or disabled before the age of 26. The accounts are like 529 college savings accounts—the account grows tax-free and can be spent on eligible expenses with no taxes. Contributions to these accounts don’t qualify for a federal tax credit or deduction. However, Iowa, Michigan, and Nebraska offer state tax benefits for contributing.

Take a higher standard deduction. Many deductions or credits require that you itemize, but if you take the standard deduction, you may qualify for a higher one, if you or your spouse is blind. In the 2016 tax year, the standard deduction for single or married filing separately is $6,300. That amount increases to $7,850 if the filer is blind or over the age of 65 or $9,400 if the filer is both blind and over the age of 65.

Child and dependent care credit. If you pay for day care or other care for a dependent, while you work or are seeking employment for work, this credit can decrease your taxes by up to $3,000 per dependent or a maximum of $6,000 for all dependents. This credit can also be used to pay for adult day care for a spouse or other dependent who is physically or mentally not able to care for themselves, but you must itemize to get this credit.

Disability credit. People who receive stable disability income and are retired on permanent and total disability or who are age 65 or older may qualify for the Credit for the Elderly or the Disabled on their own tax return, which is between $3,750 and $7,500. However, there are income limits based on the filing status and adjusted gross income.

Disabled person as a dependent. Typically, you can’t claim a child as a dependent after age 19, or 24 if the child is a student. But a disabled child or other relative can be claimed as a dependent at any age, if you provide at least half their support.

Deduct medical expenses. If you itemize, and your family's medical and dental expenses in a calendar year are more than 10% of your adjusted gross income (7.5% if you or your spouse is age 65 or older), you can deduct the excess amount. This isn’t just for those with special needs, but parents with special needs children have a lot of out-of-pocket expenses.

Adoption of a child with special needs. Families that adopt a child who is a U.S. resident or citizen and whose state welfare agency deems them to have special needs will usually be eligible for the maximum adoption credit of $13,460 per child in the year the adoption is finalized. Income limits apply, but in adoptions involving a child with special needs, the adoptive parents can claim the maximum credit regardless of whether they had qualified expenses of $13,460.

Declare disability payments. These aren’t always taxable income, since it depends on the situation. Review what type of disability benefits are being received and see if they’re subject to taxes. As an example, the IRS says that Veteran Affairs disability benefits shouldn’t be included in gross income, but if you receive long-term disability benefits from a plan that was paid for by your employer, the IRS says those can be taxable.

Children who get disability benefits. Here’s another spot where things get confusing and you may need help figuring it all out. Some parents whose children receive SSDI (Social Security Disability Insurance) payments, incorrectly report that income on the parent’s tax return. However, they don’t have to: the SSDI payments are reported on the child’s tax return. If the child has no other income, the child may not have a filing requirement, and the benefits are likely not taxable.

These tax breaks are welcome, but they can be confusing. An experienced Special Needs or Elder Law attorney will be able to help your family.